New vehicle dealer sentiment hits the skids, a sign of the road ahead for SA’s economy

The RMB/BER Business Confidence Index edged deeper into negative territory, slipping to 31 in Q4 from 33 the previous quarter. That means more than two-thirds of those surveyed were dissatisfied with prevailing business conditions.  

Still, it held up fairly well in the face of the swelling crisis at South Africa’s ports, the persistence of rolling blackouts, and an array of indicators pointing to an economy that is slowing and may have fallen into a contraction.  

Business confidence, RMB noted, was largely unchanged in three of the sectors — wholesale, building contractors and manufacturing — while the retail sector had a 15-point spike in confidence. At 47, retail confidence is still in negative territory, but things are apparently not as bleak as they were three months ago. That may point to hopes around Black Friday and the upcoming festive season.  

But for new vehicle dealers, there is scant sign of Christmas cheer. Their confidence plunged by 24 points to six index points, its lowest level since Q2 in 2020 when Covid-19 restrictions were at their zenith and the economy was imploding. At six out of 100, things could hardly go much lower.  

“The sector is struggling in the face of very weak local demand with consumer income under pressure amid high borrowing costs. Traders report on very high inventory levels,” RMB said.  

The only silver lining here is that “high inventory” levels mean new car dealers don’t have to fret about the snarl-up at the ports to get models made overseas. But it means spanking new cars are sitting idly in showrooms with little prospect of a ribbon being tied around them to mark a sale. 

“Structural supply constraints around infrastructure and electricity remain a key challenge to operating in the South African business environment. However, the decline in the BCI [Business Confidence Index] also reflects underlying demand weakness. The best example being the depressing outcomes for the interest-rate-sensitive new vehicle dealers this quarter,” said Isaah Mhlanga, chief economist and head of research at RMB.  

South Africa’s affluent classes have a love affair with cars. In a big, sprawling country where public transport and the road networks were designed to meet the needs of the apartheid economy and the white minority, this is no surprise. And the collapse of public transport in recent years has made a car more coveted as an asset. So, when South Africans who have had the means to own a vehicle stop going to showrooms to buy new ones, it is indeed a warning sign that the economy has taken a turn down a potholed road.  

Demand is breaking under the weight of high interest rates and declining disposable income. Soaring grocery bills are now the difference between buying a new car and keeping the old one running. That in turn will curb local manufacturing, with ripple effects across supply chains and the wider economy. New vehicle dealers will not be alone this year when it comes to a dearth of festive cheer. DM